Stream of Contracts May Signal Deeper Recovery

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When Aecom Technology Corp. announced last week that it had landed a $26 million construction management contract from San Francisco Public Utilities Commission for a water system improvement program, it didn’t garner major headlines.

The situation was similar the day before when the downtown L.A. engineering company revealed another contract, potentially worth $30 million, to provide design and engineering services for the U.S. Naval Facilities Engineering Command in North Carolina.

Nor were too many eyebrows raised with the announcement, earlier this month, of a $238 million joint venture with England’s Morrison Construction to build sewage and water treatment pumping stations in the United Kingdom.

But put them all together and it appears that the engineering behemoth, and Pasadena-based rivals Tetra Tech Inc., Jacobs Engineering Group and Parsons Corp., are signaling that a recovery is at hand.

“They are both bellwethers and drivers of the recovery,” said Jack Kyser, founding economist of the Kyser Center for Economic Research at the Los Angeles County Economic Development Corp. “Most people don’t understand that we have this level of engineering concentrated in Los Angeles.”

Aecom has 45,000 employees who provide professional technical and management support services to government and commercial clients worldwide. It currently manages eight of the largest infrastructure projects in the world, including a $50 billion housing project in Libya and New York’s long-awaited Second Avenue Subway.

The company reported a 12 percent jump in net income for the fourth quarter to $46 million on a 2 percent rise in revenue to $1.5 billion. A company spokesman declined comment for this story, citing a “quiet period” in anticipation of a first quarter earnings announcement in May.

Joseph Foresi, who covers the company for Janney Montgomery Scott in Philadelphia, said Aecom has benefited from government spending to prop up the economy.

“They’re good at their business and business is obviously flowing,” Foresi said. “The construction market, in general, has not been very good on the private side. We’re starting to see some of those stimulus dollars flow; big public works are happening and that’s one of the field in which Aecom excels.”

The company has also benefited, he added, from the fact that much of its work is done abroad.

Aecom’s major L.A. competitors seem at least to be holding their own.

Jacobs Engineering Group reported its first quarter net income declined 38 percent to $72.4 million, but the company beat analysts’ expectations. Company officials said that its building division, with lots of high-tech and national security contracts, was doing exceptionally well.

“We have done extremely well off the back of stimulus,” Chief Executive Craig Martin told theWall Street Journal in January.

Meanwhile, Chuck Harrington, chief executive of Parsons Corp., told the Business Journal he was optimistic about the engineering business.

“We work on megaprojects which were won in the good times and tend to bridge us into the recession. We still expect strong growth, because we are focusing on an area where there are lots of revenues,” he said. “Recession or not, the issue of aging infrastructure has not gone away and, to be competitive, this country needs modern infrastructure which, one way or another, will be built.”

Jack Plunkett, chief executive of Houston-based Plunkett Research Ltd., which follows the companies, said he was cautiously optimistic.

“The economy has clearly hit bottom and is on the way up,” he said. “The needed infrastructure improvements, both in the U.S. and abroad, are immense. We really went down fast and hard, and I think we’ve started to climb our way out.”

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